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Qatar National Bank said in its weekly economic commentary released on July 25, 2026 that cyclical factors remain the dominant drivers of US dollar resilience against most major currencies even as structural headwinds weigh on its longer-term outlook. The bank noted that an overvalued real exchange rate, persistent fiscal and trade deficits, and gradual diversification of international reserves by central banks have intensified debate over the currency’s sustainability. These pressures have built over recent years, according to the QNB assessment, yet the dollar has held firm in the face of them. The commentary emphasised that cyclical elements have offset those structural challenges effectively in the near term.
According to the QNB report, structural factors are expected to influence the dollar’s path over extended periods while cyclical forces primarily determine exchange rates on shorter horizons. Interest rate differentials have historically served as the most significant cyclical driver by shaping global capital flows and portfolio decisions. The bank added that recent reassessments of Federal Reserve policy have reinforced this effect, with markets now pricing in rates that stay higher for longer. Persistent inflation and resilient activity prompted the central bank to adopt a more hawkish stance under its current leadership.
QNB identified wide interest rate gaps as a key source of dollar support, with the federal funds target range projected at 3.50-3.75 percent compared with the ECB deposit facility rate of 2.25 percent and the Bank of Japan policy rate of 1.00 percent. The commentary explained that higher relative returns on dollar assets attract capital inflows when US rates exceed those elsewhere. Such differentials have traditionally correlated with periods of dollar appreciation, the bank observed. Markets have shifted expectations from anticipated cuts of around 50 basis points at the start of the year toward the possibility of further hikes.
The QNB analysis highlighted how AI and technology-led equity performance has bolstered foreign demand for US financial assets. As the leader in artificial intelligence innovation, the United States has drawn a disproportionate share of investments in semiconductors, data centres, cloud computing and power infrastructure. These inflows have supported corporate earnings and equity outperformance, reinforcing dollar strength according to the report. The commentary described the resulting capital movements as an important counterweight to structural pressures.
S&P Global data released July 24, 2026 placed the US composite PMI at 53.6 for July, an eight-month high that remained well above the 50-point expansion threshold and signalled momentum in both services and manufacturing. The QNB commentary noted that US growth, though moderated from prior peaks, continues to outpace other advanced economies, with the AI investment surge also lifting real-economy capital expenditure. In contrast, the Euro Area composite PMI reached 51.9 in the same period according to the same releases, yet the bank maintained that US indicators point to comparatively stronger activity overall. Such outperformance boosts demand for US assets and supports the dollar’s cyclical resilience.
In its concluding assessment, the QNB report projected that higher US interest rates, sustained foreign demand for American financial assets and continued economic outperformance will keep cyclical factors as the primary influence on the dollar in the near term. The bank cautioned that structural headwinds are likely to contribute to gradual depreciation over the longer horizon. Nevertheless, the commentary underlined that these longer-term forces have so far been overshadowed by the three identified cyclical supports. The analysis drew on a range of economic indicators to frame the currency’s current position.
